Assethold Limited v The Lessees of Flats 1-14 Corben Mews

A lease that provides for balancing charges based on expenditure already incurred does not authorise demands for estimated future service charges unless it contains a separate power to demand them. A landlord may recover reasonably incurred expenditure through the contractual balancing mechanism, subject to any challenge to reasonableness.

A tribunal must explain any reduction based on its expertise or pragmatic assessment. In determining costs under rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, it must consider whether conduct was unreasonable, whether a costs order should be made, and the appropriate terms. An order under section 20C of the Landlord and Tenant Act 1985 requires an adequately reasoned assessment of what is just and equitable.

Assethold, the freeholder of Corben Mews, appealed against the First-tier Tribunal’s determinations concerning the reasonableness and payability of service charges. The lessees cross-appealed on insurance charges and a fire-safety demand.

The leases required annual maintenance payments and permitted balancing charges for expenditure incurred during an accounting period. They contained no power to demand estimated future expenditure. The FTT also made orders concerning costs under rule 13 and section 20C of the Landlord and Tenant Act 1985.

The Upper Tribunal considered whether the estimated charges were payable, whether particular insurance and fire-safety costs were recoverable, whether the evidential burden had been properly applied, and whether the FTT had sufficiently explained its costs decisions.

1. The appeal concerning estimated service charges was refused. The leases authorised advance maintenance payments and balancing charges for expenditure incurred, but contained no power to demand estimated future expenditure. The estimated charges were properly before the FTT, and Assethold’s estoppel argument was hopeless. Once estimated costs became actual costs, reasonably incurred expenditure could be recovered through the contractual excess-contribution mechanism, subject to reasonableness challenges.

2. The insurance valuation charge was payable under clause 6(6), which permitted works and acts necessary or advisable for the proper maintenance, safety and administration of the estate and building. The FTT had overlooked that provision. Its decision was set aside and the charge was held reasonable and payable.

3. The FTT had inadequately explained its reduction of the fire-proofing charge. Expertise or a pragmatic figure is not, without explanation, a sufficient reason. Nevertheless, the evidence showed that the work was incomplete. The Upper Tribunal therefore substituted a reduced charge of £800 including VAT, rather than remitting the issue.

4. The lessees had raised a proper prima facie challenge to charges for the previous landlord’s insurance. That shifted the evidential burden to Assethold to explain and prove the charges. Assethold produced no adequate evidence that it had incurred or reimbursed the expenditure. The charges were therefore not payable.

5. The FTT’s rule 13 costs order was upheld. Applying the approach in Willow Court Management Co Ltd v Alexander [2016] UKUT 0290, the FTT had sufficiently addressed unreasonableness, the making of an order and its amount. Assethold’s repeated procedural defaults, lost hearing date and failure to provide adequate explanations justified the award. The section 20C order was also remade and upheld because the lessees’ substantial success and Assethold’s conduct made it just and equitable to prevent recovery of its FTT costs through the service charge.

• First-tier Tribunal (Property Chamber): determined the reasonableness and payability of the disputed service charges and made orders under rule 13 and section 20C of the Landlord and Tenant Act 1985.
• Upper Tribunal (Lands Chamber): set aside and remade parts of the FTT’s decision; upheld the rule 13 costs order and the section 20C outcome; refused permission on the remaining estimated-charge point.